What Anti-Business Measures Say About Us
Andrew Grove, the president of Intel, was indignant. “What’s wrong with Southern California’s entrepreneurs? Why aren’t they out working against Proposition 211 as we are up here?” he shouted over the phone from Intel’s headquarters in Santa Clara.
He was referring to the lawyer-sponsored initiative on the November ballot that would impose stricter securities laws in California than federal law or any other state calls for. Prop. 211 would make it easier for lawyers to bring shareholder suits against companies.
And 211 is but one of several among this year’s 15 ballot measures that could brand California as an anti-business state--or at least as a place too disorganized to care.
Yet reaction from Southern California’s business community, which probably contains more entrepreneurial and high-tech companies than Silicon Valley and the North, has been muted.
“We’re scared to death of 211. But we don’t hear much about it from companies we know,” says Roger Davisson, a partner in the Irvine office of Brentwood Associates, the venture capital firm. “I think small companies in Southern California are too dispersed and fragmented to get organized.”
That’s a widespread sentiment. “The entrepreneurial community here is diffuse,” says Richard Hsu, a patent attorney at Lyon & Lyon, which recently convened a conference of business owners and venture capital providers in Los Angeles.
“It’s hard to get small-business owners to a meeting, much less get them involved in a cause,” says Terrence Dibble, who heads the information industry practice of KPMG Peat Marwick.
But the problem is more serious than dispersion. There is a lack of leadership in the Southern California business community, which is why no strong voice is heard on Prop. 211 comparable to that of Silicon Valley’s leaders, who march on Sacramento and influence policy.
The failing extends beyond a single election issue. When Los Angeles County fell into a fiscal crisis last year, no business leaders stepped in with expert help and counsel.
When Orange County tumbled into bankruptcy, public officials were left to flounder without aid from business.
At present, questions of future regional airport capacity are languishing because of a lack of business leadership.
The problem is not lack of numbers. The area abounds with high-tech industry, 2,500 biomedical firms and perhaps 5,000 computer and software companies--2,500 in Los Angeles County alone.
Most of them are opinionated and active. “We speak up, educating employees, customers and the community that 211 is a scam,” says Louis Tomasetta, president of Vitesse Semiconductor in Camarillo. “But we don’t dominate the economy” as high-tech companies do in Northern California.
Southern California’s complex economy is home to many interests, including the law firm of William Lerach, the San Diego lawyer who proposed 211.
It is home to pension funds, including the Los Angeles County Employee Retirement Assn., or LACERA, that have endorsed 211 because they believe it protects investors better than the federal law that was reformed last year.
“It restores the securities law to what it was before Congress changed it last year,” says lawyer and author Ben Stein, who teaches at Pepperdine University.
But if Congress reformed the law, with votes from both parties--including significant support from Sen. Dianne Feinstein (D-Calif.)--why should California go back to an older law? Even President Clinton, a longtime ally of trial lawyers, opposes 211.
The evidence is that passage of Prop. 211 would mainly benefit lawyers’ bank balances while adding further litigation to the costs of doing business in California.
It would cast a pall over business formation. “Prop 211 is one of the most industry-threatening propositions I’ve ever seen,” says James Blair of Domain Associates, a Costa Mesa venture capital firm.
Blair recalls the formation of Amgen, the Thousand Oaks company that has become a world leader in biotech and an economic force in this region, with 4,000 employees. “Under 211, with fear of lawsuits and liability of directors, I doubt another Amgen could get started,” Blair says flatly.
The upshot could be a renewed march of companies away from California, which is already a high-cost place to do business. A new study cites Orange County, Los Angeles, San Jose and San Francisco as having above-average business costs.
California cities trail Austin, Texas; Las Vegas; Salt Lake City, Portland, Ore.; and many others in job creation, according to the study by Regional Financial Associates, a Pennsylvania research firm.
So the state needs more costs like a hole in the head, which is why the initiative process is worrisome this year.
Proposition 217, for example, would tax high-income individuals and family businesses--80% of which pay personal income taxes--to finance public services. The initiative is an angry reaction to Sacramento using local property taxes to balance the state budget while promising tax relief to small business.
However, 217 is contradicted by Proposition 218, which would prohibit localities from imposing any tax, fee or assessment without a direct majority vote. Passage of 218 would lead to cutbacks in public facilities such as parks, libraries, even some police services. But starving public amenities does not help business, even if the intention is to lower taxes.
The point, beyond arguable merits or demerits, is that these propositions come across as clumsy blunt instruments to “soak the rich” or “cut government.” They indicate that the state doesn’t have its act together, at least partly because its most populous business community lacks leadership.
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Taking the Initiatives
Several initiatives on the California ballot could, if they pass, brand the state as anti-business, opponents say. A look at how thre of the 15 initiatives could affect business in the state:
* Proposition 211: Aims to make it easier for shareholders to sue public companies in California courts over unexpected changes in their stock prices. Opponents say the measure could make the state a magnet for costly nuisance suits.
* Proposition 217: Seeks to reinstate the top two personal income tax rates of 10% and 11%. Critics say it could hurt small businesses-which, under California law, pay personal income tax instead of corporations tax-in a state that is just beginning to rebound from recession.
* Proposition 218: Would limit the ability of local governments to raise or impose various general taxes, fees and special property assessments. Opponents say the measure could reduce public services and thus make the state less attrative to business.
Source: Times reports
Researched by JENNIFER OLDHAM / Los Angeles Times
